HIGHLIGHTS

VS Industry: Key Takeaways From Briefing (VSI MK, Trading Buy, TP: RM1.41)

Without taking into the impact of foreign exchange (FX) effects, FY25 could be a strong performance year as management expects a healthy recovery of orders from its main customer, while there will be more new product launches by other customers. The Group is also in the midst of securing a new client by year-end with maiden contribution from Philippine on track. In-short, we are upbeat on the order flows and steady margins, reaffirming our Trading Buy call and RM1.41 TP.

Gamuda: Another Record Year (GAM MK, Outperform, TP: RM9.20)

Gamuda ended the FY24 financial year strongly with a 4QFY24 net profit of RM426.4m (+38.3% YoY, +47.0% QoQ), driven by higher overseas engineering & construction (E&C) earnings and stronger domestic property earnings and margins. However, cumulative 12MFY24 net profit of RM912.1m (+12.0% YoY) is still below our full year estimates at 72%, though within consensus at 96.8%. The discrepancy in our numbers were mainly due to the delayed rollout of high impact local infrastructure projects (i.e. Penang LRT, Ulu Padas Hydroelectric project, the Sabah water project, and the Pan Borneo Highway) and high initial mobilization costs for its overseas projects. In view of the robust orderbook at RM25bn, improving margin and expanding projects pipeline in both overseas and local market, boosted by booming data centre, we keep our earnings forecasts unchanged. We remain optimistic over the Group’s exciting prospects and retain our Outperform rating on Gamuda, with unchanged SOTP-based TP of RM9.20.

ECA Integrated: First Quarterly Loss (ECA MK, Underperform, TP: RM0.16)

In contrast to management’s previous tone, the Group posted its first quarterly loss in the third quarter, pushing cumulative 9MFY24F into a total net loss of RM1.8m. The poor results were a surprise to us as we expected to see improved results in the second half. Consequently, we slash our FY24-26F earnings forecasts by 45%-82% to reflect the weak outlook given the slower-than-expected recovery in the automotive and semiconductor industries. We downgrade our call from Neutral to Underperform with a lower TP of RM0.16 based on a revised 18x FY25EPS.

Sapura Energy: Ceasing Coverage

Excluding extraordinary items amounting to RM105.9m, Sapura Energy (SapE) reported core net profit of RM100.9m in 2QFY25, declining by 25.5% on a QoQ basis due to lower contribution from its JV. Meanwhile on a YoY basis, the Group’s performance reversed from a reported core net loss of RM91.7m in 2QFY24 due to better operating margin recorded for the current quarter. Overall, the Group recorded core net profit of RM235.8m in 1HFY25, reversing its losses of RM163.2m in 1HFY24. This exceeds our and consensus estimated full-year net loss of RM397.1m and RM504.0m respectively with variance broadly due to better operating margins. Despite these set of improved results, we are ceasing our coverage on SapeE due to its deteriorating financial position with negative equity of RM4.3bn, unresolved PN17 status since May 2022 and redeployment of our resources to broaden our sector coverage. Our last call is Underperform with TP of RM0.035.

Technicals: Pos Malaysia – Possible for Trend Reversal (4634, Technical Buy)

POS is potentially staging a breakaway from its downtrend, with anticipation of continuous improvement in both momentum and trend in the near term. Should immediate resistance level of RM0.360 be broken with renewed buying interest, it may continue to lift price higher to subsequent resistance level of RM0.375. However, failure to hold on to support level of RM0.325 may indicate weakness in the share price and hence, a cut-loss signal.

Technicals: UCrest – Possible for Sideways Breakout (0005, Technical Buy)

UCREST is potentially staging a breakout from its sideways channel, with anticipation of continuous improvement in both momentum and trend in the near term. Should immediate resistance level of RM0.135 be broken with renewed buying interest, it may continue to lift price higher to subsequent resistance level of RM0.145. However, failure to hold on to support level of RM0.120 may indicate weakness in the share price and hence, a cut-loss signal.

HEADLINES

Economy

US: Yellen says economy on 'soft landing' path, Fed's policyrate will fall to neutral level. US Treasury Secretary Janet Yellensaid that labour market and inflation data suggest the US economyis on a path to a "soft landing," but the "last mile" on taming inflationis bringing down housing costs. Yellen told CNBC in a live interviewthat based on comments from Federal Reserve officials, the UScentral bank's benchmark overnight interest rate will continue todecline to a neutral policy level. "I always believed that there was apath to a soft landing, that it was possible to bring inflation downwhile maintaining a strong labor market, and to me, that's what thedata suggests has happened," Yellen said. She added that therewas reason to believe that housing costs would also fall. (Reuters)

US: Pending sales of homes rise in Aug on lower mortgagerates. US pending home sales ticked up in Aug from a record low,as falling mortgage rates encouraged some buyers to dip a toe intothe market. A measure of contract signings for previously ownedhomes climbed 0.6% to 70.6 last month, according to data releasedby the National Association of Realtors (NAR). That came in belowthe median estimate of economists surveyed by Bloomberg, whohad the index rising 1%. “A slight upward turn reflects a modestimprovement in housing affordability, primarily because mortgagerates descended to 6.5% in Aug,” NAR chief economist LawrenceYun said in a prepared statement. “However, contract signingsremain near cyclical lows even as home prices keep marching tonew record highs.” Realtors are counting on buyers responding tolower mortgage rates, which recently have fallen further to justabove 6%. (Bloomberg)

US: Weekly jobless claims at four-month low; corporate profits revised up. The number of Americans filing newapplications for unemployment benefits dropped to a four-monthlow last week, suggesting that the labour market remained fairlyhealthy. The upbeat outlook on the economy was underscored byother data showing corporate profits increased at a more robust pace than initially thought in the second quarter. Strong profit growth should help to underpin the labor market and potentially shield the economy from a recession. The economy's resilience could make it harder for the Federal Reserve to deliver another 50 bps interest rate cut in Nov as some investors are hoping. (Reuters)

EU: ECB doves to push for rate cut in Oct, hawks to dig in.Policy doves at the ECB are preparing to fight for an interest rate cut next month after a string of weaker-than-expected economic data, a move likely to meet resistance from their more conservative peers, seven sources told Reuters. ECB policymakers had seen an Oct 17 rate cut as rather unlikely after lowering borrowing costs this month on the back of weaker growth forecasts and expectations for a continued, albeit bumpy, fall in inflation over the next year. However, disappointing eurozone business surveys and German sentiment data, as well as a bigger-than-envisaged slowdown in wages, have emboldened policymakers who favour lower rates — or doves in market parlance — to push for a cut, the sources said. (Reuters)

EU: German economy to shrink slightly this year, institutespredict. Germany’s GDP will shrink slightly this year, new forecastspredicted, the latest in a rash of negative reports that suggest theoutlook for Europe’s biggest economy remains dire. GDP willcontract by 0.1% in 2024, Germany’s leading economic researchinstitutes said in their twice-yearly outlook, which the governmentreferences when compiling its own forecasts. In March, theyexpected expansion of 0.1%. “In addition to the economic downturn, the German economy is also being weighed down by structural change,” Geraldine Dany-Knedlik, head of forecasting and economic policy at the Berlin-based DIW, said in an emailed statement. (Bloomberg)

UK: Consumer sentiment sinks on fiscal worries, trade bodysays. British consumers have grown more gloomy over the pastmonth following the new Labour government's removal of a welfarebenefit for pensioners and warning of tax rises at next month'sbudget, a new survey from a trade body showed. The British RetailConsortium said households' assessment of the general economicsituation over the next three months sank to -21 in Sept from -8 inAug. This reading — which represents the difference between thepercentage of respondents with positive and negative views — is the lowest since the survey's initial reading of -23 in March.(Reuters)

Hong Kong: Trade deficit widens in Aug. Hong Kong's foreigntrade deficit increased sharply in Aug from a year ago as importsgrew faster than exports, data from the Census and StatisticsDepartment showed. The trade deficit rose to HKD33.1bn in Augfrom HKD25.9bn in the same month last year. The trade shortfallalso grew markedly from HKD21.9bn in July. The visible tradedeficit of HKD21.8bn was equivalent to 8.0% of the value ofimports. The annual increase in exports was 6.4% in Aug, versus a13.1% surge in July. Exports to the Mainland of China aloneexpanded by 12.9% from last year. Total exports to Asia as a wholegrew by 9.9%. Within this, shipments to Vietnam advanced themost, by 27.0%. This was followed by Malaysia, with a 23.7% jump in exports. Meanwhile, exports to India showed a sharp decline of 20.5%. (RTT)

Markets

AirAsia: To charge mandatory carbon fees from Jan 2025. AirAsia, the short-haul airline business of Capital A, is planning to introduce mandatory carbon fees on air travel across all AirAsia operations starting Jan 2025, said its chief executive officer Tan Sri Tony Fernandes. Fernandes said the group is in the process of seeking approval from all the authorities in the country where it is operating including Thailand, Indonesia, Philippines and Cambodia. The carbon fee, which will be added to the airline's fares, is to contribute to the government's efforts to reduce greenhouse gas emissions from the aviation sector. (The Edge)

Censof: Accepts software maintenance contract from Perkeso. Censof announced that it had accepted the Letter ofAcceptance from Pertubuhan Keselamatan Sosial (PERKESO) in relation to the maintenance services for SAGA accounting system,Century Financials version 8.4 and SAGA server migration to PERKESO Infrastructure. The tenure of the Project is for a periodof three (3) years from 1 Feb 2025 to 31 Jan 2028, with no option to extend and/or renew upon its expiry. The total value of the Project amounts to RM5.4m. (BToday)

Seal Inc: Associate ropes in Sungrow for RM645m battery energy storage project in Sabah. MSR Green Energy SB (MSRGE), an associate company of Seal Incorporated, has roped inSungrow, a China-based solar photovoltaic (PV) inverter andenergy storage system provider, to develop a RM645m battery energy storage system (BESS) project in Sabah. On Sept 13, MSRGE announced that it had accepted a letter of award from Sabah Electricity SB (SESB) for the battery energy construction project.(The Edge)

Citaglobal: Bags RM46m in Terengganu deal. Citaglobal’s wholly-owned subsidiary Citaglobal Engineering Services SB hassecured a RM47.56m job for construction works for package eightof the Simpang Pulai–Gua Musang–Kuala Berang road projectfrom Kampung Jeneris to Kuala Telemong (phase two and three)in Hulu Terengganu, Terengganu. The scope of the contractincluded the proposed construction and completion of earthworks,pavement, drainage works, road furniture and geotechnical works.(StarBiz)

HCK: To settle bulk of RM113m debt owed to majorshareholder Clement Hii by issuing new shares. HCK CapitalGroup is issuing new shares to settle the bulk of an outstanding RM113.35m debt that its subsidiary owes its executive chairmanTan Sri Clement Hii Chii Kok @ Hii Chee Kok. HCK said it has,together with indirect wholly-owned subsidiary Global Activate SB(GASB), entered into an agreement with Hii to issue 47.26m newshares at RM2.1161 apiece as settlement for RM100m of the debtowed. (The Edge)

Yenher: Acquiring RM18.6m feedmill equipment to boost animal feed production. Animal health and nutrition products manufacturer Yenher Holdings is purchasing a fish mill and pet foodand silos machinery, for USD4.42m (RM18.56m) cash. Theacquisition is aimed at supporting Yenher’s venture into the downstream feedmill business while expanding its product offerings. The equipment will be supplied by Famsun Co Ltd, aChinese firm that is involved in the manufacturing of special equipment for feed, agricultural and sideline foods. (The Edge)

MARKET UPDATE

The FBM KLCI might open stronger today after US stocks rose toanother record Thursday as financial markets around the worldrallied again. The S&P 500 added 0.4% to set an all-time high forthe third time this week and the 42nd time this year. The Dow JonesIndustrial Average gained 260 points, or 0.6%, to finish just shy ofits record, while the Nasdaq composite rose 0.6%. In stock marketselsewhere, indices were more buoyant on hopes for more movesby China to prop up the world’s second-largest economy. Thecountry’s powerful Politburo on Thursday called for intensifiedefforts as China tries to meet its goals for economic growth,according to the official Xinhua News Agency. That follows a raft ofannouncements earlier in the week by the country’s central bankthat had also sent global markets jumping. China’s economicgrowth has been flagging, and officials appear to be making a morecoordinated effort following earlier piecemeal attempts to boost it.In the United States, meanwhile, more encouraging news cameafter a round of reports on Thursday suggested the world’s largesteconomy may be doing better than expected. Fewer US workersapplied for unemployment benefits last week in the latest signal thatlayoffs remain relatively low across the economy. A separate reportsaid the overall US economy grew at a 3% annual rate during thespring, as previously estimated. The hope on Wall Street is for aform of financial nirvana where the US economy’s growth can holdsteady and keep profits for companies humming while the FederalReserve continues to lower interest rates. Among the key markets,jumps of 4.2% in Hong Kong and 3.6% in Shanghai led the way.Indices also climbed 2.8% in Japan, 2.3% in France and 1.7% inGermany. South Korean stocks jumped 2.9%, led bysemiconductor maker SK Hynix, which launched production of anew memory chip for artificial intelligence. Back home, the FBMKLCI closed down by 2.06 points or 0.12% to 1671.32.

Source: PublicInvest Research - 27 Sept 2024